Third district business conditions are favorable and are expected to continue improving. Inventory investment is increasing and local businessmen expect it to continue upward for at least six months. Capital expenditures are holding steady. The employment picture is improving. Production is strong and construction is continuing at a high level. Area bankers have or can get funds to lend, but most are not aggressively seeking loan applicants because of the unfavorable prime rate. On the darker side, inflation still plagues district businessmen.

Manufacturing activity remains brisk. Forty-seven percent of the respondents to this month's business outlook survey report increases in new orders and sales, while 52 percent report increased shipments. However, the percentage of local firms experiencing decreases in production has increased somewhat from last month. The outlook is even brighter on the six month planning horizon; nearly 60 percent of the executives foresee increases in new orders and shipments.

The third district is experiencing continued modest gains in employment. While the majority of businesses contacted see no change in the labor situation, a large and increasing minority report taking on additional employees. Over 80 percent report that the length of their average workweek is unchanged, and 75 percent foresee no change in the length of their workweek six months hence. Looking further into the future, small improvements on the employment front are expected to continue into fourth quarter 1973. One-quarter of the responding firms plan to increase hiring by then.

Inventory investment is still increasing. Forty-three percent of the manufacturers surveyed report increased inventories over last month. These respondents foresee continued gains in the next six months too. Most firms anticipate increased capital expenditures six months from now. But the number of firms predicting an increase in their plant and equipment expenditures is down slightly from a month ago.

Area bankers contacted say that their demand deposits are up slightly above what they normally experience during this season. Savings deposits are about flat. Two banks said disintermediation was holding back growth in their savings deposits. All the bankers contacted indicated that they could get funds by selling CDs—but they also noted that they were not anxious to do so because of the unfavorable downward pressure on the prime rate. Business and consumer loans are up slightly. Mortgage loans are flat at the same high levels as past months.

Inflationary pressure is still heavy. Two-thirds of the surveyed firms are currently encountering rising costs for raw materials, and over half are charging higher prices for their goods. Long range inflationary expectations are even higher. Over 80 percent of the firms expect to be paying higher prices, and 64 percent expect to receive higher prices, in the next six months.